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The Upside, Downside as U.S. Retailers Come North

Pedestrians enter the Pacific Centre shopping mall in Vancouver in this file photo.

By Karen Johnson

It seems every other day there’s another U.S. retailer putting down stakes or expanding its presence in Canada. (On Wednesday, it was Ann Inc., announcing it would add another four of its more-casual Loft stores north of the border.)

A new report says the northern expansion is doing more than providing Canadians with more shopping options–it’s changing the retail landscape and threatening to erode some of what made Canada such an attractive destination for retailers.

U.S. retailers have been driving a steady retail building boom in Canada, where an average of 11.5 million square feet of leasable shopping area has been added each year since 2007, according to Colliers International’s 2013 Spring Retail Report. Tens of millions more square feet of retail space are under construction now.

Colliers doesn’t see a bubble forming in the retail-space sector, so long as Canada’s population and economic growth continue to keep pace.

In recent years, they have kept pace. But, as Colliers notes, weaker consumer confidence, lower-than-expected job growth and high household debt levels have hurt retailers across the board in recent months.

Meanwhile, Canada’s growing retail-space footprint, the report says will “undoubtedly” put pressure on retailers, weighing on Canada’s attractive shopping-mall productivity levels. Canada’s annual shopping center productivity is 605 Canadian dollars ($585) per square foot, higher than the U.S. average of $455, according to the report.

And it’s the U.S.-based retailers operating in Canada that are likely to outperform if that happens, since they are generally better at aggressive price discounting and absorbing excessive supply growth, giving them an advantage over their Canadian counterparts, James Smerdon, vice president and director of retail consulting at Colliers, said in a statement.

In terms of retail space, the Canadian consumer is under-served, with just 14.6 square feet of floor space per capita, compared to the American consumer’s 23.8 square feet. So it’s no wonder U.S. retailers are coming here in droves–with Nordstrom, Target Corp., Victoria’s Secret and J.Crew among the recent names.

But the report notes that challenges that U.S. retailers can face in setting up shop up north, citing higher costs to import goods, higher average lease rates and more expensive labor costs.

“U.S. retailers expecting to add Canada to their network as if they were adding a 51st–and contiguous–state could find themselves at the end of the list that includes Sam’s Club Marks & Spencer, Kmart and others – successful retailers that have made unsuccessful expansion efforts into Canada,” the report says.

About Canada Real Time

Canada Real Time provides insight and analysis into what’s making news in Canada, a country punching above its weight on the world stage thanks to its vast resources and strong banking sector. Drawing on the expertise of The Wall Street Journal and Dow Jones Newswires, we take a look at developments in fields ranging from business to politics to culture. You can contact the editors at canadaeditors@dowjones.com